[Report] High Sale Prices Hit Hard... Complex Shops in the Heart of Seoul Turned into 'Ghost Shops'

Seoul Jung-gu 'Hillstate Sewoon Central' Commercial Complex
One Year Since Move-in but Many Vacant Stores
Decline in Tenant Demand Due to High Interest Rates

A banner encouraging tenants to move in is attached to the entrance door of the vacant commercial space on the first floor of the ‘Hillstate Sewoon Central’ complex in Jung-gu, Seoul. Photo by Kwon Hyunji

"No matter how central it is in downtown Seoul, who would want to move in if the rent is this expensive?"

On the 15th, the first floor of the commercial area within the ‘Hillstate Sewoon Central’ complex in Jung-gu, Seoul, was deserted despite it being lunchtime. This apartment complex’s commercial space has been occupied for almost a year, yet most of the shops were vacant. Only a convenience store, an essential business, was operating on one side, while banners encouraging tenants to open ‘unmanned stores’ and ‘snack shops’ hung pitifully in front of neighboring shops.

Apartment complex commercial spaces in Seoul have recently become unwanted burdens. Due to rising construction costs pushing up sale prices and a decline in demand for commercial spaces caused by high interest rates, many units remain unoccupied.

Empty commercial spaces line up on the first floor of the 'Hillstate Sewoon Central' complex in Jung-gu, Seoul. Photo by Kwon Hyunji

In Seocho-gu, Seoul, the high-end apartment complex ‘Raemian One Bailey’ also has about 20 vacant units out of 162 stores (based on general sales). The commercial area of this apartment is located in a double transit zone near Seoul Subway Lines 3, 7, and 9’s Express Bus Terminal Station and Line 9’s Sinbanpo Station, and it recorded high competition rates at the time of sale. However, the final contract rate was only 60%.

The commercial spaces within the ‘Helio City’ apartment complex in Songpa-gu, Seoul, which has a total of 9,510 households, have also failed to fill vacancies even five years after occupancy. A real estate agent in Songpa-gu said, "Building B’s commercial spaces have poorer accessibility compared to Building A and less foot traffic, so vacancies remain high," adding, "Some stores have seen rents drop to between 600,000 and 800,000 KRW per month."

The reason why commercial spaces that should have been occupied by residents are already empty can be found in the high sale prices. The sale price for Raemian One Bailey’s commercial spaces reached up to 110 million KRW per 3.3㎡ (1 pyeong), and Helio City’s commercial spaces are also known to exceed 100 million KRW per pyeong.

High sale prices make it difficult to find tenants. There is a gap between owners who want to charge high rents and tenants who want to move in cheaply that cannot be bridged. A sales industry official explained, "With high interest rates and a poor economy, no one wants to endure expensive rents to run a business," adding, "From the landlord’s perspective, they would rather leave the space vacant until the economy improves than lower the rent."

High interest rates are also a burden for tenants. According to the Korea Federation of Banks, the interest rates on personal business loans from the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) rose from 2.7?4.2% annually in December 2021 to 5.2?6.2% annually in December last year, increasing by more than 2 percentage points in one year. Interest rates on secured loans also surged from the 3% range to the 5% range during the same period.

Seon Jong-pil, CEO of Commercial Space Radar, explained, "Construction costs have risen by about 30%, gradually increasing sale prices, but profitability has significantly declined due to reduced usage of commercial spaces by residents," adding, "Vacancies persist mainly in complexes with an oversupply of commercial spaces." According to the Korea Real Estate Agency’s ‘Commercial Real Estate Rental Trend Survey,’ the investment yield for commercial and office spaces dropped from 1.39% in Q3 2022 to 0.84% in Q3 last year, a decrease of 0.55 percentage points in one year.

The construction industry is also showing signs of reducing the number of commercial spaces within apartment complexes. They aim to minimize unprofitable commercial spaces and maximize margins through apartment sales. A construction company official said, "As the number of apartment complexes with unsold commercial spaces increases, developers are advised to reduce commercial spaces from the initial design stage." CEO Seon also noted, "In complexes where consumers cannot come from outside and are limited to residents, there is a tendency to reduce the size or number of commercial spaces."